Company description: Celebrations, stationery & creative play and gifting
From its origins as a manufacturer of gift wrap, through being a manufacturer of gift packaging product, IG Design Group now has a broad product range within the categories of:
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celebrations – primarily gift packaging and greetings products (75% of FY17 revenues);
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stationery and creative play (15% of revenues); and
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design-led giftware (10% of revenues).
The company is known in its markets simply as The Design Group, while retaining the ticker IGR from its historic name of International Greetings, having relaunched with new branding in summer 2016. This branding highlights the core competence of the group in design and innovation, which is leveraged across a broadening range of product categories. The exposure to seasonal product (eg for Christmas, or Valentine’s day), which was a distinct characteristic of the group, has been managed by management’s focusing on growing the ‘everyday’ categories, which accounted for 43% of FY17 revenues.
The business is genuinely global, with manufacturing operations in China, the Netherlands, the UK and the US and a JV in Australia. Revenues and operating profits by geography are shown below, but this masks the true spread of the business as the UK/Asia segment includes the sourcing activities for goods sold into different territories. Turnover by destination paints a slightly different picture, with the UK a lower proportion at 27% and the US higher at 43%, boosted by a part-year of Lang, acquired during FY17.
Exhibit 1: FY17 revenue by geography
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Exhibit 2: FY17 operating profit by geography
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Source: IG Design Group accounts
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Source: IG Design Group accounts
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Exhibit 1: FY17 revenue by geography
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Source: IG Design Group accounts
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Exhibit 2: FY17 operating profit by geography
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Source: IG Design Group accounts
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The scale of the business is important to grasp. In the year just reported, IG Design traded with more than 10,000 customers across the world (up from 5,400 in the prior year, reflecting Lang joining the group), with group products on sale in more than 200,000 retail outlets in 80 countries. Management estimates that the global gift packaging and greetings market is valued at around £15bn at retail prices and that it is the third largest player (after American Greetings and Hallmark, both US companies). In FY17, IG Design sold almost 1bn metres of gift wrap and nearly 1 billion stickers. Lang added £14m of sales in calendars, which are a common gifting item in the US market and are reported in the Gifting segment. Across the group, over half a billion items were either manufactured or sourced in FY17, 46% of which were either carrying IG Design’s own brands or licences. This implies a unit price of approximately 61p at trade price, with retail values being roughly 2.5-3x that level.
Around 10% of sales are in the upscale market segments and this acts as a spur to innovation and creativity. However, the real impetus behind top line growth has been the growth in the market of the value retailers in both Europe and North America. There is an exceptionally broad range of retail customers, from the mass-market brands in the US such as Costco, Target and Walmart, through the major traditional multiple grocers and the discounters in the UK, the discount/dollar stores, regional retailers and drugstores, as well as niche and upscale retailer groups and online retailers. Some of these trading relationships have lasted over 20 years and the group was recently one of only three global suppliers to be awarded ‘No one tries harder for customers’ status by Tesco. The largest customer represents 6% of sales.
Licensed product across the group makes up around 12% of group revenues, but concentrated on a relatively narrow and focused portfolio. This principally consists of a mix of perennial properties, such as Peppa Pig and classic Disney characters, with some ‘hotter’ additional licences such as Frozen and Star Wars. The retail segment has become increasingly risk averse in its stock decisions, but many of the Disney or Universal properties have the momentum to drive sales even in dull markets. Lang has added some strong US sports-based licences, such as NFL and the NBA.
The group manufactures around 39% of the product that it sells (by value) and has a broad supplier base, with a heavy bias to China and the Far East. This proportion was diluted in the reporting year by the acquisition of Lang, which sources its entire product range. IG Design employed an average of just over 2,100 people in FY17, 77% of whom worked in production and distribution, principally in China, the UK (the two largest manufacturing geographies), the Netherlands and the US. Common IT infrastructure is facilitating the use of the main design studios across the group’s global manufacturing and sourcing, as well as providing the more obvious benefits in sales and CRM.
Exhibit 3: FY17 activity by region
£m |
UK & Asia |
y-o-y growth |
Americas |
y-o-y growth |
Europe |
y-o-y growth |
Australia |
y-o-y growth |
TOTAL |
y-o-y growth |
Celebrations |
85.6 |
4% |
82.5 |
52% |
33.4 |
36% |
30.5 |
32% |
234.2 |
26% |
Stationery & Creative Play |
22.8 |
4% |
21.2 |
91% |
0.9 |
-11% |
2.7 |
-36% |
48.2 |
25% |
Gifting |
5.7 |
4% |
14.1 |
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11.4 |
34% |
0.3 |
-40% |
31.8 |
117% |
Total |
117.0 |
4% |
117.8 |
81% |
45.7 |
34% |
33.6 |
20% |
311.0 |
31% |
Source: IG Design Group accounts, Edison Investment Research
Diversification driving growth opportunities
IGR originated as a gift wrap printing company established in Wales in the late 1970s by Anders Hedlund (whose family interests still account for 38% of the group’s equity). It expanded through the 1990s to include other seasonally related products, selling predominantly to UK wholesalers. It floated on AIM in 1996, at which point sales were around 90% UK, 90% in buyers’ own-brand and 90% oriented to the Christmas season, with a buy-and-build strategy. A number of acquisitions followed, but when markets softened in 2007 the group was compromised, with the balance sheet significantly stretched, with gearing at 168% at end FY09. A new FD specialising in restructuring and control implementation was appointed and in January 2009 Paul Fineman was appointed group CEO, having joined the group in 2007 with the acquisition of Anker (a UK-based supplier of stationery and children’s activity kits). Paul initially focused on instilling commercial disciplines, having had many years of experience in the industry, joining his family firm, Anker, after college. Anthony Lawrinson took over as CFO in October 2011, joining from Reliance Security Group, with prior experience in a range of sectors including O2 and Hickson International.
Tight financial management (“it’s not profit until it’s cash”) has seen gearing first brought under control then actively managed down, at a notably faster pace than we had anticipated. This discipline has given the executive team the comparative freedom to be able to make operational decisions (particularly the significant capital investment across its key manufacturing facilities) in the interests of building the group’s future rather than simply focusing on paying back the debt.
Strong design disciplines, efficient manufacturing supporting low cost and a commitment to supply-chain compliance underlie the group’s client relationships, which are increasingly more like a strategic partnership in nature, particularly as retailers contract their supplier lists.
These principles are being extended through adjacent categories. Partyware has been added in recent years and forms part of the Celebrations (about 5% of divisional sales). In the current financial year, there will be an increased sales effort on retail collateral, also known as not-for-sale consumables (also known as bags). Primarily targeting the fashion and beauty segments, where visual and tactile attributes are of greater importance, the group has already built around a 7% market share with product being shipped in from its Chinese manufacturing operations. Management estimates that the value of this sector is around £130m, with recyclable paper bags with integral twisted-paper handles an attractive proposition from quality and compliance perspectives. In FY18, IG Design will start to manufacture for this segment in its UK facilities.
Elsewhere the group is benefiting from the growth of its customers across Europe, as retailers such as Aldi grow in Eastern Europe. There is also benefit from bricks-and-mortar retailers growing their online channels (and, to a lesser extent, vice versa).